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CEO compensation is business strategy

Boards seek leaders who can meet healthcare reform challenges

“Hospital CEOs see double-digit pay hikes,” declared a headline from the St. Louis Post-Dispatch in early June. These are the types of headlines that make hospital CEOs and their boards heave heavy sighs. They know how much defending and explaining they are going to be doing – again – even if they aren’t defending themselves specifically.

It seems criticism of hospital and health system executive compensation is a perennial favorite with the media and communities, but it isn’t wrong for these entities to question executive compensation levels say compensation experts. After all, no matter how you look at it, to most people, it’s a lot of money.

[See also: Hospital CEO bonuses reward volume ]

But for boards, the biggest issue isn’t so much how much is too much or how much is too little, it’s how much is necessary to recruit and retain the talent that will address the unprecedented business challenges these organizations are facing now and in the near future, said Larry Reissman, a senior compensation expert at human resources and compensation consulting firm, Buck Consultants.

“Retention and recruitment of talent is seen as mission critical by boards to address the business challenges,” he said. 

“Hospitals are incredibly complex organizations to run and you need to pay the position what it deserves to get the right kind of talent because whatever you’re paying the CEOs isn’t nearly as costly as a failed hospital,” pointed out Eddie Phillips, CPA, a principal in the tax practice of Atlanta-based healthcare accounting firm Draffin & Tucker.

But getting that right talent is not easy, said Paul Esselman, a senior consultant for Cejka Executive Search.

For one thing, the executive pool is shrinking as baby boomers retire, and for another, while there may be a lot of executives in healthcare who want to be CEOs, not many of them have the proven experience of being able to drive high-quality service, patient, employee and clinician satisfaction and the finances and operations.

“The pool of individuals – the pool of leaders – that can be effective in this new healthcare arena … is a small pool,” he said. “Ten to 15 years ago, it was all about finance and operations. Now it’s quality, safety, finance, operations, and then community.”

Boards of directors are, on the whole, very sensitive to how their decisions look to the community, their peers and to legal entities, said Ron Seifert, vice president and executive compensation group leader for global management consulting firm the Hay Group’s healthcare practice, but at the end of the day, they’ve got to implement a pay strategy that will enable the organization to meet its needs.

“These next few years in healthcare are going to be incredibly tumultuous and stability and continuity of leadership during this period is quite critical so whatever that means to an organization for their compensation level … that is the debate and struggle for these organizations as they try to balance this out with the concerns of the public, the challenges that they feel financially and the need to have strong leadership teams in place for a sustained period of time,” he said. “There’s enough craziness in their world – to not have stability in the leadership team is just fuel for fire that they don’t need.”

 

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